-E ATTORNEY GENERAL
OF ?rExA&
WILL WILSON
*-rro- GENERAL
August 13, 1958
Hon. William A. Harrison Opinion No. WW492
Commissioner of Insurance
State Board of Insurance Re : Question concerning in-
Austin 14, Texas vestments of life Insurance
companies under Article
39, Sections 6, 7 and
Dear Mr. Harrison: 3; and related questions.
The first question presented In your letter
under date of May 7, 1958; involves the proper con-
struction of Section 6, Article 3.39 of the Insurance
Code, This section deals generally with the investments
by a life insurance company in the shares or share accounts
of building and loans associations and, federal savings
and loan associatlons..~, In order to get a complete and
comprehensive picture of the type of funds which may be
invested in shares or share accounts, and to facilitate
the construct&on of Article 3.39 so as to give each section
contained therein its full and complete meaning, it seems
wise to interpret the entire article (3.39) regarding
investments in shares and share accounts. We are here
dealing with these various types of funds: (1) Capital,
(2) surplus, (3) contingency funds over and above the a-
mount required for policy reserves and (4) the policy re-
serves themselves.
Section 1 of Article 3.39 is the first place
wherein express mention Is made of investments in shares
and share accounts.
“A life Insurance company organized under
the laws of this State may invest in or loan
upon the following securities, and none other,
v,;~~u~h~i~;; ;ny invest any of its funds and
. . .shares or share accounts
as authorized in Section 1, page 76, Acts 1939,
46th Legislature; . . . or in shares or share
accounts as authorized in Chapter 534, page
966, Acts 1949 51st Legislature; . . .”
(Eanphasis ours)
.
Hon. William A. Harrison, page 2 (WW-492)
The references above are both to Article 881a,
Section 24, which states:
“Any county, or any political subdivision
of any county, any school district, city or
town in this State as well as any Texas corpora-
tion, Including any insurance company organized
under the laws of this State, or any insurance
company doing business In this State under a
permit, may invest any of its funds in the shares
or share accounts of any building and loan
association organized under the iaws of this
State, . , .‘I (pnphasis ours)
Up until 1951, there had been no expressed reference
Inthe Insuranoe Code to the Building and Loan Act (Article
881a). In 1951 the Legislature made abudantly clear Its
Intention as to the investment of “any of the funds or
accumulations” of a life insurance company in the shares or
share accounts of “any building and loan association”.
Thus was intended a broad delegation of investment power
in this type of security.
Now In the light of Section 1, what is the proper
construction of Sections 4 and 6 of Article 3.391 It must
here be reiterated the importance of distinguishing between
the types of funds to be invested. Section 4 applies only
to the Investment of capital, surplus, and contingency funds
over the amount required for policy reserves. The statute
says, as to these, that a life insurance company
. ..shall not invest in nor take as collateral
security for any loan its own capital stock nor
more than ten per cent (10%) of the amount of
its capital, surplus, and contingency funds in
the stock of any one corporation. . ..’
By no stretch of Interpretation could this provision
be said to limit a life insurance company to a total invest-
ment of ten percent in shares and share accounts. The phrase-
ology of Section 4 places only a restriction on the investment
of ten percent of the amount of the capital, surplus, and
contingency funds in the stock of any one corporation and
not the stock of all corporations in which investments may
be made.
Hon. William A. Harrison, @age,3 (WW-492)
This brings us finally to the proper interpreta-
tion of Section 6 in light of-the previous Section 4.
First, It will be noted that contained in the last sentence
of Section 6 is this statement:
"The investment powers conferred by
this Section 6 are in addition to those con-
ferred by Section 4 of this article and are
not to be construed as restricting the powers
already ranted by said Section 4, and this
Section 2 and the powers conferred herein are
cumulative with respect to the said Section
4 and the powersconferred therein."
This is taken to mean that the provisions of Section
6 will not apply to an Investment in a savings and loan pursuant
to Section 4.
Remembering the wording in Se~ction 1, that an in- __
suranoe company "may Invest 9 of its funds and accumulations";
and likewise referring again to Section 6 which says:
. ..provlded. however, that under this
Section 6, and except as authorized in Section
4 of this article, no more than five (5%) per
cent of the admitted assets of the insuranoe
company making the investment . . . and no suah
investment shall exceed twenty (20%) per cent
OS tn to%il outstanding shares.of- any such
indiv?dual building and loan association,
savings and loan association, or stock of such
bank. ,.."
It is obvious that to interpret Sectlon 6 so as
to limit the total investment in all building and loan shares
and share accounts to five percent would be to render mean-
ingless the words "any of ,its funds" as used in Section 1.
So that import may be given to both sections, the better
construction is that Section 6 gives power to Invest all
funds, other than capital, surplus, and contin ency funds
above the amount required for policy reserves ? which are
covered in Section 4) in the shares and share accounts of
building and loan associations, but limited to five percent
;;ny;fo;; company. The proviso of no more than five per-
e admitted assets refers to ".the investment'
in a single association, not to all such Investments in a
number of associations. In the conjunctive proviso, it
is clear that the Legislature is setting up the restriction
Hon. William A. Harrison, page 4 (.W-&92)
as to a single association or bank for it IS stated “of
any such Individual association”.
Thus, in order to fully encompass the meaning
of the entire statute relating to investments in shares
and share accounts, It Is the considered opinion of this
department that the Investments of capital, surplus, and
contingency funds over the amount required for policy re-
serves are controlled by Section 4 of Article 3.39; while
the remaining funds to be Invested are controlled by Section
6 of the same article. Further, ,that the five percent
requirement In Section 6 relates to the amount of funds
which may be invested In an one company,~ and does not
limit the total Investmen 3 InXiis particular type of
security.
In construing any statute which is as ambiguous
and uncertain as this one obviously is, the departmental
construction is oftentimes helpful and of probative weight
as an aid to interpretation, The departmental history of
Section 6 of Article 3.39 Is varied and uncertain. It
appears from a preliminary Inquiry that for a number of
years, prior to February 6, 1956, that the Investigators
for the Insurance Department, In their examinations, were
prone to admit investments in various shares and share
accounts of building and loan associations In the calculations
of the assets of the company being examined. It appears
that their major concern was whether or not the Investment
;;,v;;;OOQ.OO or less so as to be covered by government
This was more of a tolerance than an afflrma-
tive approval, yet this seems to carry some probative weight
as to the attitude of the department with regard to these
investments.
On February 6, 1956, ~csme the ,first written state-
ment as to the departmental attitude regarding-e 3.39.
This was not a complete pronouncement of departmental in-
teption, yet it Is probative for. the determination of the
then existing attitude.
“This directive is issue for the pur-
pose of advising the procedure to be used in
testing all investments of mutual assessment
life companies. . . .
“Section 6. Stocks of insured bulldlng
and loan associations, insured Federal savings
and loan associations and stocks of state and
Hon. William A. Harrison, page'5 (WW-492)
national banks - limited to 5% of the admitted
assets of the insurance company in any one
security. (Emphasis ours)
"Section 7. Debentures of qualified solvent
public utility:' corporations - limited to 5s
of the admitted assets of the insurance company
in any one security. (Emphasis ours)
"Section 8. Preferred stock of qualified
solvent public utility corporations - limited
to 23% of the admitted assets of the insurance
company in any one security." (Emphasis ours)
This attitude prevailed until'the order of the Com-
missioner under date of February 25, 1958, was issued. This
order states the present position of the department as follows:
"You are hereby informed that the directive
of February 6, 1956, is amended as follows:
"1. Itls the opinion of this office that
Section 6, Article 3.39 of the Insurance Code
limits the total insurance company investments
in an or a‘lT-iif; the above described securities
to -8--
f ve per cent of the'insurance company's ad-
mitted assets and not to such amount in any
one security. In ?iEier words, investment of
mortuary or relief funds in the shares or
share accounts of Insured building and loan
associations and savings and loan associations
plus investments in capital stock of state
and national.banks In the aggregate may not
total more than five per cent of the insurance
company's admitted assets.
"2 . Under the provisions of Section 7,
Article 3.39, the total investment of mortuary
or relief funds indebentures of qualified
solvent public utility corporations is limited
to five per cent of the insurance company's
admitted assets.
" 3 . Section 8, Article 3.39, limits the
total investment of mortuary or relief funds
ine preferred stock of qualified solvent
public utility corporations to 23 per cent
of the insurance company's admitted assets."
Hon. William A. Harrison, Page 6 (WW-4%)
In determining which departmental construction
is valid we are confronted with the following: The present
attitude is most recent in duration while the prior attitude
was more of a tolerant one than an active statement of policy.
However, departmental construction is made up of various
comkdities - actions of officers in administering the act,
tolerance of various practices and actions of those con-
trolled thereunder, as well as explicit statements of policy.
In expressing an opinion of this department, the same aids
to interpretation are available for the proper construction
of the statute and the determination of the correct legis-
lative intent, It would thus appear that the Attorney
General's office, in construing a statute, can utilize one
of the longstanding aids to interpretation, meaning the
departmental construction by the agency charged with the
administration of the act. "When statutes construed by the
Attorney General are at least of doubtful meaning, ion@;-
standing departmental construction may be resorted to in
determining their proper interpretation." Dallas Title
Guaranty Company v, Insurance Commissioners, 224 S.W.2d
332 (Civ.App. 1949 rehearing den., error ref,). Also
see Lower Nueces River Water Supply District v. Cartwright,
'74 S.W.2d 199 (Civ.App. lgf:k, rehearing den., error ref.
n.r.e.).
It will be noted here that the departmental con-
struction of the statute in question previous to the current
attitude of the Commissioner of Insurance has been in con-
formity with the conclusions reached above. We feel that
absent any abuse of discretion on the part of the administra-
tive agency charged with the enforcement of a particular
act, that that agency's interpretation should be controlling
where a statute is ambiguous or at best uncertain. We feel
that the previous departmental construction has been neither
abusive nor unreasonable and find that, in line with the
interpretation enumerated above, this departmental construction
adds considerably to the weight of the conclusions reached
herein.
Your next inquiry involves the construction of
Section 7 of Article 3.39 which states in pertinent parts:
"It may invest any of its funds and akmula-
tions in the debentures of any solvent public
utility corporation...; but in no event shall
the amount of such investment in debentures under
this subdivision exceed five (575) per cent of
the admitted a-sets of the insurance company
making the investment."
. . .
Hon. William A. Harrison, page 7 (WW-492)
The quoted portion of Section 7 indicates an
authorization to invest "any of ----its funds" in the first
portion thereof and later appears to limit that other-
wise general permissive language by the use of the
phrase "such investment" in the latter part of the section.
This ambiguous situati& in the statute calls for clear
interpretation and construction. The only difference
between the language in Section 7 and the language in
Section 6 is that the entire statement regarding this
particular type of investment is found in one section,
without reference to another section and statute, as is
the case in Section 6. It would thus appear that the
same type of analysis is applicable to Section 7 as was
discussed in the preceding Section 6; namely, - to.give
meaning to both parts of the section it is mandatory that
the percentage requirement refer only to the investment
in one particular company and not refer to the total
authorization for this particular type of investment.
In attempting to find the departmental construction
of this particular section of the statute, we look to your
opinion request wherein is stated:
"It has heretofore been the departmental
construction of this statute that a life in-
surance company could invest up to five (5%)
oercent of its admitted assets in the debentures
bf any public utility corporation without limit___
as to the total overall investmentyn such deben-
tures in a number of publicutility ---corporations-.
In other words, a life insurance company could
invest 5s of its admitted assets in the debentures
of ABC Public Utility Corporation, 5% of its ad-
mitted assets in the debentures of DEF Public
Utility Corporation, and 5% of its admitted
assets in the debentures of XYZ Public Utility
Corporation."
We feel that this construction placed by your de-
partment on this apparently ambiguous or at best uncertain
statute is to be given great weight in considering the
proper interpretation of same. Absent any clear showing
of abuse in the departmental construction, we feel that
the departmental construction should be controlling, and
so hold in this case.
The last question raised by your recent inquiry
involves Section 8 of Article 3.39 which reads in part:
.
Ron. William A. Harrison, page 8 (WW-492)
"It may invest any of its funds and
accumulations in the preferred stock of any
solvent public utility corporation.,., but in
no event shall the amount of such investment
in pre.ierred stock under this subdivision
exceed two and one-half (2$;6) per cent of the
admitted assets of the insurance company making
the investment."
The lingua,~e here is identical in pertinent parts
to the language in Section 7. Consequently, the interpretation
of Section 7 would likewise apply to Section 8; namely, that
the statute being ambiguous or at best uncertain, the depart-
mental construction of this section should be looked to for
the proper interpretation of the statute. Absent any
clear abuse in this construction it should and is here de-
clared controlling as to the legislative intent embraced
therein. Thus, it would appear that in Section 8 a life in-
surance company could invest any of its funds and accumulations
in the preferred stock of any solvent public utility corporation;
this meaning that there should be no limit on the number of
companies in whose stock investments are made, but that the
two and one-half (26%) per cent should apply to the amount
of investment in any one corporation. Eeeliminary investi-
gation discloses thatthis has been the departmental construc-
tion for a number of years.
A word of clarification seems appropriate here.
The opinion has been written addressed to inquiries in-
volving Sections 6, 7 and 8. This is in no way to be con-
strued as limiting or lessening the effect of Section 9 of
Article 3.39, wherein requirements are made for preservation
of more liquid assets.
SUMMARY
Section 1 of Article 3.39 of the Insur-
ance Code provides for investments of
"any and all funds and accumulations".
This is modified by a 10% limit in Sec-
tion 4 on the investment of capital,
surplus, and contingency funds over
and above amount required for policy re-
serves in the shares and share accounts
of --
any one corporation.
,Hon. William A. Harrison, page 9 (WW-492)
The investment of the remaining funds is
provided,for in Section 6. The percent-
age requirement in Section 6 refers to
the amount which may be invested~in the
shares and share accounts of x -one
corporation and is no limit on the total
investment in this type of security.
Section 7 of Article 3.39 authorizes the
investment of any of the funds and accu-
mulations of a life insurance company in
the debentures of any solvent public utili-
ty corporation. The five (5s) per cent
requirement enumerated therein refers to
the investment in any one public utility
corporation. This does not refer to the
total investment in this type of security.
Section 8 of Article 3.39 authorizes a
life insurance company to invest any of
its funds and accumulations in the pre-
ferred stock of any solvent public utili-
ty corporation. The two and one-half
(2%) percent requirement enumerated
therein refers to the investment in any
one public utility corporation. This
does not refer to the total investment
of this type of security.
Nothing in the above Is to be construed as
limiting the effect of Section 9 of
Article 3.39.
CDD:ph Very truly yours,
APPROVED: WILL WILSON
'> Attorney General of Texas
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman ByCr !il-&db;4
C. Dean Davis
J. Arthur Sandlln Assistant
Wallace P. FinfrocK
Jay Howell
FGVIWED FOR THE ATTORNEY
GENERAL
BY:
W. V. Geppert